Monday, September 17, 2012

Poker Is Not “Gambling”

The facts in this case do not involve the use of computer
technology to commit a crime.I am doing
a post on it because the holding in the court's opinion plus a recent opinion from the
U.S. Department of Justice seem to open up the possibility on legal online
gaming in the United States.I’ll
explain more at the end of this post.

Lawrence DiCristina, “ in partnership with two others,
operated a poker club in the back room of a warehouse out of which he conducted
a legitimate business selling electric bicycles.” U.S. v. DiCristina,

Games were generally held on Mondays
and Thursdays, . . .although there was some evidence to suggest
this schedule was not adhered to with full regularity. . . . Games were
advertised via word-of-mouth and text messages sent to potential participants
by the partnership. . . . The club contained two tables, at which
No Limit Texas Hold'em was played. . . .

A `1–2’ game was played at one of the
tables; a `5–5’ game was played at the other. . . . In a 5–5 game,
one designated player would have to bet $5 (the `small blind’) . . . and
another designated player would have to bet $5 (the `big blind’) . . . ,
regardless of what cards they held in their hand. . . . In the 1–2
game, the small blind was $1, and the big blind was $2. . . . The
average amount of chips purchased by the players . . . ranged from $100 for the 1–2 game. . .to $300 for the 5–5 game. . .

U.S. v. DiCristina,
supra.

DiCristina’s involvement in the poker club led to his being charged
with operating an illegal gambling business in violation of 18 U.S. Code §1955, and conspiring to do so.” U.S. v.
DiCristina, supra.Dicristina “moved
to dismiss the indictment on the grounds that a poker room does not fall under
the definition of an illegal gambling business proscribed by the federal
statute because poker is predominately a game of skill rather than chance.”U.S. v.
DiCristina, supra.

He argued that “whether poker is a game of chance or skill”
was “a mixed question of law and fact to be determined by the jury” at trial,
but the federal judge who has the case ultimately “ruled that whether
poker constituted gambling under the applicable federal criminal statute would
be decided as a matter of law.”U.S. v. DiCristina, supra.In other words, he held this was an issue to
be decided by the court, not by a jury.

The judge reserved ruling on DiCristina’s motion to dismiss,
the case went to trial, the jury was “instructed that poker constituted
gambling under” § 1955 and DiCristina was convicted on both charges. U.S. v. DiCristina, supra.He “then renewed his motion for a judgment of
acquittal” under Rule 29 of the Federal Rules of Criminal Procedure.U.S. v.
DiCristina, supra.In this opinion,
the judge is ruling on DiCristina’s motion for acquittal.The only issue is whether poker qualifies as
“gambling” under 18 U.S. Code § 1955.

At a post-verdict hearing, “Dr. Randal D. Heeb, a respected
economist, statistician, and player in national poker tournaments, testified as
an expert on game theory.”U.S. v. DiCristina, supra.Although Dr. Heeb acknowledged that poker . .
. involves an element of chance”, he ultimately “opined that poker differs from
other forms of gambling, such as sports betting, because the player can rely on
sophisticated skills to change the outcome of the game.”U.S. v.
DiCristina, supra.

As the judge’s opinion notes,

[a]ccording to Dr. Heeb, `many people
make a living playing poker and win consistently over time’ whereas `it is
impossible to make a living and to win consistently playing casino games such
as roulette’ where chance predominates. . . .This fact alone was an independent
foundation for his opinion that skill predominates over chance in poker.

U.S. v. DiCristina,
supra.

In the report he submitted to the court, Dr. Heeb elaborated
on this finding:

Based on his research, [he] concluded skill
predominated over chance in determining the outcome of a poker game. He
summarized the results of his study of 415 million hands of No Limit Texas
Hold'em that were played on-line at the PokerStars website from April 2010 to
March 2011. . . . To verify the reliability of the data he received
from PokerStars, he obtained publicly available data from HandHQ, a company
that tracks hands played on PokerStars and other online poker sites. . . .

Using this outside source, he confirmed
that the data received from PokerStars was an accurate records of hands
played. . . . Although his information came from internet poker,
rather than face-to-face games, Dr. Heeb concluded that the data set he chose
was appropriate:

`The game is a game of skill in exactly
the same way, whether it's played live or played over the internet. . . . So my
conclusions . . . carry over exactly to when the exact same game is played,
whether it is played in person, played with cards, . . . or played
electronically over the internet.

The only difference between playing
live and playing in person is that the live game brings in some additional
elements of skill which are not available to the internet player.’

The prosecution’s expert, Dr. David DeRosa, another “well-qualified
econometrician,” also testified at the hearing. U.S. v. DiCristina, supra.

Unlike
Dr. Heeb, Dr. DeRosa neither has any personal experience with poker . . . nor
has he independently analyzed the game. Moreover, he noted that he had `not
been provided with any of the data or statistical analyses summarized in Dr.
Heeb's report.’

His testimony was thus limited to a
critique of whether `Dr. Heeb's stated results support his overarching conclusion,
namely that skill predominates over chance in poker.’

U.S. v. DiCristina,
supra.

While Dr. DeRosa acknowledged that `the actions of [poker]
players ha[ve] some impact on the outcome [of the game] and poker is not a game
of pure chance”, he had “several criticisms of Dr. Heeb's work.”U.S. v.
DiCristina, supra.

First, he argued that Dr. Heeb's analysis
erroneously relied on `relative skill rather than likelihood that a player will
earn a profit.’ . . According to Dr. DeRosa:

`Poker players play poker to win money.
A player will consider himself a winner if he earns a profit. The fact that he
may lose less money than another player is likely to be of cold comfort. I
believe that the proper metric for determining success at a session of poker is
whether or not a player profits from playing the game.’

U.S. v. DiCristina,
supra.

Dr. DeRosa concluded from the fact that

so many players lose money that `if a
player were to make a profit at any given session in a game where he faced a
negative expected rate of return, such profit would have to be primarily as the
result of luck.’ . . . Because so few players win money, he contended, skill
cannot predominate over luck in poker. . . .

Finally, Dr. DeRosa questioned the
validity of Dr. Heeb's data set, as well as his methodology. Since the data
came from an online poker website, Dr. DeRosa was concerned that it might not
represent `real hands played by real players’ and might include false data
points representing instances in which live players -- who may have believed
that they were playing against another, similarly-situated person -- were
playing against either a computer or a confederate of the gaming company.

U.S. v. DiCristina,
supra.

Based on this and other evidence and expert opinion, the
judge began his analysis of whether DiCristina’s motion for acquittal should be
granted.U.S. v. DiCristina, supra.

He explained that § 1955(b)(1) defines an “illegal gambling
business” is one that (i) is a violation of the law of the state in which it
was conducted, (ii) involves “five or more persons who conduct, finance,
manage, supervise, direct, or own all or part of such business” and “has been
or remains in substantially continuous operation for a period in excess of
thirty days or has a gross revenue of $2,000 in any single day.” U.S. v. DiCristina, supra.Section 1955(b)(2) defines gambling as
including but not limited to “pool-selling, bookmaking, maintaining slot
machines, roulette wheels or dice tables, and conducting lotteries, policy,
bolita or numbers games, or selling chances therein.”U.S. v.
DiCristina, supra.

In addressing DiCristina’s motion for acquittal, the judge
reviewed the legislative history of 18 U.S. Code § 1955 and found, first, that
it indicated the statute was intended to target organized crime’s involvement
in gambling.U.S. v. DiCristina, supra.He also noted that Congress “never discussed the meaning of `gambling’”
in the statute.U.S. v. DiCristina, supra.“It
did not address whether it encompassed games of some skill, or merely games
predominated by chance.”U.S. v. DiCristina, supra.

After reviewing the historical context in which the statute
was adopted and other relevant materials, the judge noted that “[a]lthough
poker and other card games requiring skill were widely played when [§ 1955] was passed, such games are not included in
that provision's list of gambling activities.”U.S. v. DiCristina, supra.But he also noted that “the fact that the
statute does not explicitly mention poker, in itself, is not conclusive
evidence that that game should not be considered gambling under” 18 U.S. Code §
1955.U.S. v. DiCristina, supra.

He also explained that

[p]oker is, for the purposes of this
case, an elephant -- or perhaps an eight hundred pound gorilla -- that Congress
would have been unlikely to ignore. The fact that card games like poker,
pinochle, gin rummy, and bridge were so widely played by law-abiding individuals
in noncriminal settings may explain its omission from [§ 1955]. As Sherlock
Holmes would describe the clue, it is the dog that didn't bark. . . .

As a matter of statutory construction, poker must fall
under the general definition of gambling and be sufficiently similar to those
games listed in the statute to fall within its prohibition. . . .
It does not.

U.S. v. DiCristina,
supra.

After reviewing other relevant sources, the judge found that
to “constitute an illegal gambling business under [§ 1955], . . . the business
must operate a game that is predominately a game of chance.”U.S. v.
DiCristina, supra.He then held that
“[b]ecause the poker played on [DiCristina’s] premises is not predominately a
game of chance, it is not gambling as defined by” 18 U.S. Code § 1955.U.S. v.
DiCristina, supra.

So he set aside the jury’s verdict and dismissed the
indictment.U.S. v. DiCristina, supra.

This is a very abbreviated treatment of a very detailed
opinion (85+ pages in length).If you
would like to read the full opinion, you can find it here.

This opinion means that 18 U.S. Code § 1955, one of the
statutes federal prosecutors could use to prosecute those who engage in online
gambling apparently does not apply to poker, off- or online.And in a memo dated September of 2011 but
released last December, the Justice Department reversed its longstanding opinion and said that
the Wire Act, 18 U.S. Code 1084, does not apply to non-sports betting. As this
article explains, the Justice Department’s memo, plus the DiCristina opinion, may are have a significant impact on
the legal status of online gaming in the United States.

1 comment:

I agree 100% with this post....Poker is not gambling, poker is a skill game, it does not involve computer technology and if you have a good strategy you can win, as you play against real players. nothing compared to slot machines and roulette, where you only need luck!